Sri Trang Agro-Industry - CGS-CIMB Research 2020-06-22: Green Rubber Company


Sri Trang Agro-Industry - Green Rubber Company

  • Sri Trang Agro-Industry is a fully-integrated natural rubber company, and is a global leader in the space, according to management.
  • Sri Trang Agro-Industry is in the process of spinning off its glove business on the SET as it believes that Covid-19 is driving strong demand for gloves.
  • As at 19 Jun 2020, the SGX-listed shares are trading at a 6.3% premium to the S$ equivalent share price on the SET. See Sri Trang Agro-Industry Share Price.

Fully integrated natural rubber company

  • According to the management, Sri Trang Agro-Industry (SGX:NC2) is the world’s leading fully integrated natural rubber company with a market share of 8% of global natural rubber consumption in 2019.
  • Sri Trang Agro-Industry produces a full range of natural rubber products, from technically specified rubber (TSR) and ribbed smoked sheets (RSS) to concentrated latex with a total production capacity of 2.86m tonnes per annum (p.a.) as at end Dec-2019. According to the management, Sri Trang Agro-Industry is also Thailand’s largest and the world’s third largest glove producer. Its main glove products are natural latex gloves and nitrile gloves with a total installed capacity of 27bn pieces of gloves p.a. in FY19.
  • Sri Trang Agro-Industry also has a joint venture that is Thailand’s largest manufacturer of high-pressure hydraulic hoses as at end Dec-2019. Sri Trang Agro-Industry’s main customers are tyre manufacturers which traditionally are the largest consumers of rubber. In 1Q20, 22% of revenue was derived from the sale of gloves while the remaining 78% came from the sale of rubber-related products.
  • Sri Trang Agro-Industry was listed on the Stock Exchange of Thailand (SET) on 22 Jan 1991 and separately listed on the Singapore Exchange on 23 Jan 2011 (dual listing).

Spinning off glove business

  • In 1Q20, Sri Trang Agro-Industry’s glove segment reported a 26% y-o-y increase in revenue, outpacing the group’s overall y-o-y revenue growth of 17.5%. The glove business accounted for 22% of 1Q20 revenue compared to 20% a year ago.
  • Management believes that glove demand will be strong due to Covid-19 and has announced plans to spin off its glove business. The listing has been approved by the SET and the company is targeting to be listed by July 2020.
  • By end-FY20, management aims to have a production capacity of 32bn pieces of gloves p.a. and its publicly announced target capacity by end-2032 is 100bn pieces p.a.

Historical valuations

William TNG CFA CGS-CIMB Research | https://www.cgs-cimb.com 2020-06-22
SGX Stock Analyst Report NOT RATED MAINTAIN NOT RATED 99998 SAME 99998